BlockFi, 8 Subsidiaries File for Bankruptcy: Smooth & Efficient Crypto Contagion Continues

The price of consensual hallucination. Filing also lists $30 million SEC settlement, and huge amounts owed to unnamed “clients.”

By Wolf Richter for WOLF STREET.

And it happens again. Crypto outfit BlockFi Inc., which was founded in 2017, and eight affiliates – BlockFi Trading, BlockFi Lending, BlockFi Wallet, BlockFi Ventures, BlockFi International Ltd., BlockFi Investment Products, BlockFi Services Inc., and BlockFi Lending II – filed for Chapter 11 bankruptcy today in the US Bankruptcy Court for the District of New Jersey. BlockFi International Ltd., which is incorporated in Bermuda, filed for bankruptcy with the Supreme Court of Bermuda.

BlockFi had halted withdrawals when FTX collapsed, and at the time hired bankruptcy counsel. Any fiat and cryptos anyone had on these platforms is now part of the bankruptcy proceedings.

In the bankruptcy filing, BlockFi Inc. checked the box that said it has “more than 100,000” creditors, and it checked the box that said it owed those creditors between $1 billion and $10 billion.

On its blog, BlockFi said today that withdrawals will remain blocked, and “clients’ claims will be addressed through the chapter 11 process.” Whatever amounts, if any, clients will be able to get back will be determined by the bankruptcy court.

10 largest unsecured creditors listed in the bankruptcy filing:

  1. Ankura Trust Company (the trustee for BlockFi’s “Crypto Interest Accounts”): $729 million
  2. FTX US: $275 million
  3. Unnamed “client”: $49 million
  4. SEC for a “settlement”: $30 million
  5. Unnamed “client”: $28 million
  6. Unnamed “client”: $26 million
  7. Unnamed “client”: $16 million
  8. Unnamed “client”: $10 million
  9. Unnamed “client:” $9 million
  10. Unnamed “client”: $6 million

The $275 million that BlockFi owes FTX is part of an incestuous relationship between BlockFi and FTX entities, including an effort by FTX to bail out BlockFi, and thereby to bail itself out, after BlockFi had made a large loan to FTX affiliate Alameda Research, which collapsed.

On its website, BlockFi said it had “significant exposure” to bankrupt FTX and its bankrupt affiliates, including “obligations owed to us by Alameda, assets held at, and undrawn amounts from our credit line with FTX.US.”

“We were shocked by the news regarding FTX and Alameda,” BlockFi said. In a modern re-make of the film noir Casablanca, the famous line would be: “We’re shocked, shocked to find that gambling and scams are going on in here.”

Speaking of which…

The $30 million if owes the SEC for a “settlement” is the remnant of a $100 million settlement with the SEC and 32 states.

In February 2022, the SEC charged BlockFi Lending LLC “with failing to register the offers and sales of its retail crypto lending product. In this first-of-its-kind action, the SEC also charged BlockFi with violating the registration provisions of the Investment Company Act of 1940.”

To settle the charges, BlockFi agreed to pay a $50 million penalty, and comply with some rules. In addition, parent BlockFi Inc. agreed to pay $50 million in fines to 32 states “to settle similar charges.”

This was the first ever crackdown by the SEC on a crypto lending platform. Nine months later, the platform filed for bankruptcy and still owes the SEC $30 million.

VC firms were big into crypto consensual hallucination:

BlockFi had raised $1.4 billion in funding in 13 rounds, including a debt financing. The biggest investors –they already kissed their investments goodbye – were, according to CrunchBase:

  • $500 million: Rose Part Advisors (Series E)
  • $400 million: FTX US (credit facility – see the $275 million entry above)
  • $350 million: Bain Capital Ventures, Bracket Capital, DST Global Partners, Pomp Investments, and Tiger Global Management: (Series D)
  • $50 million: Morgan Creek Digital: (Series C)
  • $48 million: Valar Ventures (Series A and Series B). The VC fund was spun out of Thiel Capital, Peter Thiel’s company.

It’s an amazing sight to see these crypto outfits swallow up so much money from so many people who thought they were so smart and then go down in flames so fast. It could only happen because of a massive bout of what I call consensual hallucination.

But it shouldn’t be a surprise…

…no matter how “shocked” these people might now be that their money is gone. I laid this out in my podcast, THE WOLF STREET REPORT: Leverage & Interconnectedness Are Blowing Up Crypto & DeFi.

Crypto lenders Celsius Network and Voyager Digital collapsed in July. Then there is a whole slew of crypto-related companies that went public via IPO or merger with a SPAC, whose shares have now collapsed by 95% or more. And the first batch of them is warning about bankruptcy, including last week, Bitcoin miner SPAC Core Scientific, a year after going public. That companies like this could be dumped into the lap of the public speaks of the widespread “consensual hallucination” that was required to pull it off.

These crypto outfits lent to each other and used crypto tokens as collateral which then collapsed, and they bought each other’s crypto tokens which then collapsed, and they gambled with their clients’ funds on tokens that then collapsed, and they used their own artificially inflated crypto tokens as reserve capital that then collapsed, and funds were siphoned out as we now see being revealed in the FTX bankruptcy.

While these twisted inter-connections and self-boosting mechanisms were working, they all went to heaven together, but those mechanisms make for smooth and efficient contagion in the whole crypto space, and now they’re all going to heck together. Crypto should not be regulated; just let it burn off.

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  167 comments for “BlockFi, 8 Subsidiaries File for Bankruptcy: Smooth & Efficient Crypto Contagion Continues

  1. Harrold says:

    The FI stand for “Flippin Idiot”.

    • John says:

      Stay away from authoritarian, dictatorial type leaders!
      China is a good example of the trusting sheep being led
      to the slaughter.

      • andy says:

        How they survived for 5000 years is anyone’s guess.

      • Leo says:

        We don’t only want to survive. We also want to “live”.

      • Anthony A. says:

        Andy, they built that big wall to keep the folks inside.

      • Leo says:

        Andy, Oligarchs don’t want their slaves to die, else whose work will make them rich.

        They just want their slaves to never think about freedom or liberty.

      • Miller says:

        Not trying to sound flip and not a fan of their policies, but with over 1 million covid deaths here in the US and now bad flu and RSV on top, far more than over there, who’s being led to the slaughter exactly?

    • Pea Sea says:

      Come on, at least pretend to be commenting about something in the article or in the comment you’re “responding” to.

      • Miller says:

        Agreed. What is up with the comment spam lately that has nothing to do with what Wolf is posting on?

      • Leo says:

        It’s a good article. It was a funny comment.

        Don’t want to keep beating the dead crypto horse.

        On the other side, there is a dictator rising in China, and it will have contagion, starting with Apple factories there. Make me feel bad to know that I may be buying products manufactured by exploited labor treated in inhumane manner.

    • Miller says:

      Is this the crypto bros version of “look, over there, it’s a squirrel!” Trying to derail Wolf’s post and topic (and the mounting trouble for crypto and the exchanges) with a completely irrelevant comment and thread at the very top?

      • Miller says:

        Not to mention wire services are saying the opposite. Lockdowns are being wound down in response, it’s now a very different policy going forward

    • morty mc mort says:

      “The line Broke, the Monkey got choked.. they all went to heaven in a little row boat”..

    • NBay says:

      Caught part of a hearing on CSPAN last night, where heads of 4 major regulatory bodies were questioned about crypto. Sorry I forgot who. Maybe someone else saw it?
      All sorts of different approaches, depending on desired messaging to constituents, as usual….I suppose “how did this happen?” was the general theme.
      One point made was a real Catch-22. By trying to regulate it, it was feared that would give it legitimacy….har-har!…now THAT is some good CYA…..of course this is all 100% hindsight stuff, and as I said, mostly posturing and showing off “knowledge” to constituents, which comes from their staff, anyway, except for Liz and maybe some others that do understand something about the current “system”.
      And no clear answers on possible contagion, at all. Nobody ever knows how deep the financial engineering rabbit holes go, except for those busy digging all the different parts of it…..and not for the good of all, and that is about all we can count on.

  2. breamrod says:

    as long as it stays in the crypto space they’ll ( the gov.) let it burn off. But if it jumps the fence into the real economy through contagion then I’m not so sure. I wonder how many layers of this onion there are ?

    • Augustus Frost says:

      Not so sure about that. Hard to resist mission creep and empire building.

      But you are correct, it should be allowed to collapse.

    • AB says:


      This is not about fences. These dynamics embody what in fact has existed in a dormant form in the global economy for years. The use of crypto as a source of collateral was baseless, so it unravels first. In the so called real economy the collateral has greater intrinsic worth, but is also horribly price distorted.

      A gradated sequence of price correcting events is unfolding, working its way through atrocious collateral and, so far, slowly to less atrocious collateral. The less atrocious collateral includes, in no particular order, equities, corporate bonds, real estate, autos and more.

      • OM says:

        Those crypto artists done what they learned in real life. Only two differences- environment is not regulated, so looks less trustworthy, and there is no CB to cry for bail out if things go out of hand.
        Once current system will go sideways, and if allowed to go for some real collateral level, some very interesting price and value discovery will take place.

      • Old Ghost says:

        AB wrote” A gradated sequence of price correcting events is unfolding, working its way through atrocious collateral and, so far, slowly to less atrocious collateral. The less atrocious collateral includes, in no particular order, equities, corporate bonds, real estate, autos and more.”

        A very astute, if awkwardly worded, observation.

        The most over priced assets are having their prices deflated. Begining with the worst, and working down the list.

        Crypto, being the worst of the worst, with no underlying value of any sort, is having it’s day in the sun.

        Real estate, which usually retains some sort of value, will probably be one of the last assets to go thru deflation.

        Cash is not trash.

        • Lune says:

          Actually, in our modern economy where money flows fast, things are happening much quicker. Everything is correlated. Cryptos, stocks, and housing are all down (although obviously not by the same amounts). The global economy these days is intrinsically unstable: everything is correlated, and huge flows of money can be directed in milliseconds by thousands if not millions of random players. There are very few (and largely ineffective) circuit breakers to allow one market to dissociate itself from contagion in other markets.

          Ironically, crypto is probably the most isolated of the large global markets. But when crypto bros need to sell their tesla shares to pay back their coinbase margin accounts, you’ll start to see spread from even there.

        • NBay says:

          Sooner or later more people will realize FRACTIONAL BANKING was a MAJOR wrong turn in human cultural evolution…..organized religion was another, and probably the WORST by far.

    • phleep says:

      > they’ll ( the gov.) let it burn off.

      That’s NOT what Sam Bankman-Fried was burning (customer) dollars to do. He wanted crypto under CFTC with a neutered, permissive set of regulations. (This was inapt, IMO, because so much of crypto, not so much BTC, but ETH and its programmable cousins, DOES act a like a security, which the more rigorous SEC regulates.) He was showering money on Congress oversight members and the heads of both houses of Congress to get this end-run and rigging done. It would have been, IMO, a disaster for the public, at least as SBF wanted to play it. I think the losses should be allowed to play out, and some investigations done, before Congress revisits it.

      • Anthony A. says:

        While he was doing all of what you say, he was funneling investor’s money into a myriad of fake corporations and other private entities. In other words, he is a scam artist.

        • Shiloh1 says:

          Poor Skilling. Enron actually had assets such as petroleum storage tank terminals and O & G pipelines.

          SBF will not spend a minute in jail.

        • Miller says:

          That’s a good description, both you and Phleep. Seems like he had more than one racket going on.

        • Mike r says:

          Yeah, exactly. And imagine that Kevin O Leary was trying to obtain $8 billion to bail out FTX, right up until the end, until all the big money VCs heard that FTX was going to be investigated by the SEC and DOJ.

          Kevin called him a ‘crypto savant.’ More like both are ponzi savants.

        • NBay says:

          “is a scam artist”

          So are big Pharma and big OIL…..but they are corporate and PE GANGS, not individuals.

          Ironic the Bloods and Crips chose Red and Blue, yes?

      • Cytotoxic says:

        This elides the fact that the regulations SBF were calling for were hardly toothless and there’s every reason to believe it was meant to hurt his competitors.

        When SBF started regulation-simping is when CZ of Binance dumped all of the token that FTX used as a “reserve” and that’s when it all fell apart for FTX & SBF. That’s what everyone who calls for regulation should get: financial bankruptcy to match their moral bankruptcy.

    • Madison says:

      The global liability of the officially sanctioned Ponzi aka dollar denominated derivatives is priced in quadrillions! The difference between crypto scams and dollar scams is that in the latter scammers get bailed out and the government printer go Brrr. You cannot go Brrr with crypto. Or gold.

    • Old school says:

      I think the Fed is going to have to go up the speculative food chain a bit to kill inflation. Some say 20% of US firms are zombies and many will go under if the higher rates stick around.

  3. Djreef says:

    So, what exactly was Alameda Researching?

    The fastest way to lose client money?

    • Depth Charge says:

      “Alameda Research” was a weird looking nerd girl doing meth while spending money.

      • KGC says:

        My guidance counselor never told me that was an option…

      • Phoneix_Ikki says:

        Well, her die hard devotion to Harry Potter paid off though. She was able to make billions disappeared….one hell of a trick. Something that Alan Rickman can’t even do in the movies..

  4. andy says:

    The Ontario Teachers pension fund will not be happy about this. Same with Larry Fink and Masayoshi Son.

    Glad I moved all my crypto assets to Binance. It operates from Cayman Islands and is very secure. Jack Ma look-alike runs it.

    • ru82 says:

      Good luck with any of those Cayman Island or Bahama Islands (FTX) exchanges.

      I would never put money into a Cayman Island company. No legal recourse if you lose your money.
      The Cayman Islands is a separate legal jurisdiction to the United Kingdom and has its own laws

      • andy says:

        It’s ok, I diversified with tangible assests – printed my bitcoins out on paper. Keeping it with my Alibaba stock certificates (coincidently also ADR’ed in Cayman Islands).

        • Lune says:

          You should sell NFTs of those printed bitcoins. For every $100 in BTC, you should be able to get easily $1k in NFT sales.

          It’ll be the crypto equivalents of CDS squared, and we all know how that turned out (fantastically well for the people that sold them, and that’s all that matters!)

      • Gomp says:

        You funny

    • Don says:

      I can’t tell if this is a joke, or if you are being serious.

      • andy says:

        Don, I thought crypto “assets” was a give away :-] I’ll try to do better next time.

        • 91B20 1stCav (AUS) says:

          andy-nothing equates to the sensation of pulling someone’s leg only to have it come off in your hand…

          may we all find a better day.

        • Miller says:

          you had me there too for a while, I’ll admit

      • Si says:

        😆 We really do live in a world where it is difficult to tell the difference between reality and parody.

        As well as keeping hold of our assets we should be concerned about keeping hold of our sanity.

        Nothing will happen to SBF and none of us will find out why.

        Its a club…. And we a’int in it.

    • What’s Next says:

      I saw this coming and used all my crypto to buy beanie babies.

  5. Phoenix_Ikki says:

    We can no longer call this the new version of Tulip bubble and crash. We need a new object or metaphor to depict the speed of the contingent spread…

    We should call this the Chinese fire cracker crash…the speed of things blowing up, it’s exactly like those long roll of chinese fire crackers once it’s set off..

    • Sams says:

      The cryptocurrency bubble is as good a tulip bubble as any. With the same cause as the tulip bubble. Too much money with nothing sensible to invest in. This time the money bubble was created by the central banks with QE.

      QE, done to supress interest rates and make “investors” or rather speculants take greater risks and propel assets price to the moon. I do think they did not manage to get assets price to escape velocity. Cryptocurrencies is the first to reach peak altitude and return down, stocks and real estate are to follow.

      To me what happen with the cryptocurrency companies now look very much what happened to the banks before they consolidated, founded the FED and became interwoven with the government.

      • Miller says:

        Yep, most of these lunatic speculative basketcases in the Everything Bubble since 2007 and 2008 lead to the same place, QE and ZIRP maintained for way too long. They shouldn’t have been begun in the first place.

    • The Real Tony says:

      A good analogy to the Chinese as the Chinese all buy at the same time and all sell at the same time with zero regard for value.

  6. Lou says:

    I wonder how this is going to effect the housing bubble?

    • Depth Charge says:


    • Phoenix_Ikki says:

      In a sane logical world, it would mean contagion effect and force selling of houses at reduced price..

      Unfortunately, we don’t live in that world so I won’t hold my breath, plus perhaps the contagion in Crypto and wealth effect from it just not large enough to move the housing market

      • John says:

        I keep seeing this comment about pricing remaining stubbornly high on housing, yet my brother who retired and wanted
        to scale down, had to lower the price of his house by 40% to sell it, and did so while holding his nose. The house was in perfect condition in OC-
        south with an ocean view. Still, he got his investment back and then some,
        more than most of us save in a lifetime. Had he sold a year earlier he might only have needed to reduce his price by 20%, according to his realtor. It took him months to sell
        as it was. (He moved to Florida to be with grandchildren.)
        So unlike the herd, he did not hang onto his asking price until the cows came home. He reduced, and reduced and reduced it till it sold.

        • Phoenix_Ikki says:

          Really? Especially in OC, then again as Wolf pointed out before, what was his asking price? If his asking price before 40% reduction was 40-50% higher than comp..then it means very little..

          Don’t get me wrong, I wish for the world for LA/SoCal/IE home price to crash hard so working folks have even a remote chance of buying without taking on beyond sane level debt. Just not seeing it right now…as everything is still asking a base level $1M, guess that’s the cool bottom line round number, market might turn, it’s just going very very slow at the moment and Crypto flash crash might not force enough people or small time investor to create market pressure.

    • Frederick says:


  7. Wisoot says:

    Its the modern form of quantitative tightening. Few billion here and there taken out the system overnight will balance all the money that entered the market that was made out of thin air via the keyboard. Money has the value we place upon it. Until it doesn’t. What then?

    • MiTurn says:

      “…no matter how “shocked” these people might now be that their money is gone.”

      So, this is money gone. Gone, as in up in smoke.

      Isn’t this actually helpful? In the sense, that ‘excess’ money is being removed from the market….effectively a form of QE?

      A billion here, a billion there, all gone.

      A fool’s paradise.

      • Anthony A. says:

        …….”effectively a form of QE?”

        You mean QT?

      • Anthony A. says:

        Actually, MiTurn, the money is not really “gone”, it’s in someone else’s bank account or under their mattress.

      • The Real Tony says:

        I originally hypothesized the government would crash the crypto market to bring all the teenagers back into the workforce. As this wouldn’t affect the stock market it was an easy decision to crash the crypto market. Bringing more workers into the workforce brings down wage inflation which is what the government wants.

    • cb says:

      How you going to un-print 8 trillion dollars?

      • Wolf Richter says:

        “a billion at a time.”

        • cb says:

          excellent answer. and they will never get close to all of it, especially with their long term 2% inflation ponzi goal.

          they are grifters under cover of law.

        • cb says:

          they have stolen value from your saved dollars and will continue to do so as they can. That is their prosperity. The graft of their deceitful craft.

  8. Nathan says:


    • Khowdung Flunghi says:


    • Phoenix_Ikki says:

      Well since you put it in ALL CAPS, the DOJ and State AGs will get right on it..

      • BuySome says:

        The Nathan Injector was used on steam locomotives to keep up the water level in the boiler, thereby allowing one to keep up steam pressure levels. Nathan must just be propping up the pressure by injecting capital letters. Let’s just hope he doesn’t blow a pop valve or rip a crown sheet.

    • Swamp Creature says:

      Sam Bankman-Fried should be arrested and immediately sent to Gitmo and share a cell with KSM (Kali Sheik Mohammad) the mastermind of 911.

    • California Bob says:

      Well, not everywhere.

      “The most important single decision I ever made was to change the IBM 360 series from a 6-bit byte to an 8-bit byte, thereby enabling the use of lowercase letters. That change propagated everywhere.”

      – Fred Brooks b. April 19, 1931 d. November 24, 2022

  9. Xaver says:

    In future it will be easier to explain why crypto is nonsense. But why didn’t the SEC collect its fines faster? “Work to rule”?

    • Augustus Frost says:

      Don’t worry, the SEC and state regulators are probably at or very near the top of the list.

      They will get their pound of flesh even as the retail customers who should have priority are behind them.

    • Heron says:

      Uh, who is in charge of the SEC?

      Thats your answer right there, lol. Money is gone!

  10. Nathan says:

    From DOJ, June 30, 2022:

    “Justice Department Announces Enforcement Action Charging Six Individuals with Cryptocurrency Fraud Offenses in Cases Involving Over $100 Million in Intended Losses”

    “The Department of Justice, together with federal law enforcement partners, today announced criminal charges against six defendants in four separate cases for their alleged involvement in cryptocurrency-related fraud, including the largest known Non-Fungible Token (NFT) scheme charged to date, a fraudulent investment fund that purportedly traded on cryptocurrency exchanges, a global Ponzi scheme involving the sale of unregistered crypto securities, and a fraudulent initial coin offering.”

  11. JoAnn Leichliter says:

    Bain Capital…. Isn’t that Mitt Romney?

    • Candyman says:

      Yes, it was. He bailed out some time ago. Always ahead of the sirens!

    • Wolf Richter says:


      He founded it in 1984 as a spinoff from Bain Consulting (which he ran). He left in 1994.

      • Harry Houndstooth says:

        Perhaps I should be less shocked to see Peter Thiel’s name associated after decades of wishing I had his early access to promising investments. Even Forbes was hoodwinked into believing that crypto represented real wealth creation. Thank you Wolf Richter, Warren Buffet and Charlie Munger.

      • bulfinch says:

        Bain (Bane); Trump; Bankman-Fried…these aren’t character names lifted from a Marvel comic book?

        If we’re in a simulation, the writers need to be fired.

    • Depth Charge says:

      “Corporations are people.”

      • phleep says:

        I guess the well was running dry for asset-stripping of traditional companies? New fields of creative destruction beckoned in the virtual world. Several of the private equity firms also have gone public, cashing out yet again.

      • Harry Houndstooth says:

        Depth Charge-

        This simple but profound revelation crystalizes the need to modify our status quo to improve the current human condition.

        • HowNow says:

          DC, it must have been a case of “bad gas” for Mitt on the occasion of saying “corporations are people”. He’s extremely smart, usually very tactful, and doesn’t drink. An unforced error.

  12. Depth Charge says:

    I said it over a year ago, but it bears repeating. When Coinbase goes bankrupt, we’ll know crypto is finally finished.

    • Iona says:

      Michael Saylor being perp walked is my fat lady singing moment for crypto. Don’t know much about microstrategy but I don’t see how that company doesn’t implode given it’s leadership.

      • Phoenix_Ikki says:

        You gotta give it to Saynor, the guy is either grifting all the to the bottom or he is a true die on the hill believer.

        I can picture in the future, MW dictionary will have the word #HODL Cypto with his picture next to it.

    • Cytotoxic says:

      It’s never going to be ‘finished’. Crypto doesn’t need Coinbase, it needs math and electricity. The former seems rock solid even if the latter is getting a bit iffy in Europe and some other locals. Crypto’s not going anywhere.

      • Wisoot says:

        Invest in wave energy generators – the only place Nibiru can go

      • HowNow says:

        Cyto, you’ve been shilling for crypto for months. You’re pitching to the wrong audience, wasting electronic ink.

  13. Mark says:

    You know what comes to mind ?

    Just how the term “consensual hallucination” would fit in with the last 3 years of the real estate market .

    • TEMPLE says:

      Especially in Canada, where Canadians thought they could get rich selling properties to each other. A perpetual money machine, so to speak, just as long as you don’t ask too many questions…

    • Harry Houndstooth says:


      5 star comment…

      1) timely
      2) appropriate
      3) truthful
      4) entertaining
      5) humorous

  14. grimp says:

    The local gas station has a bitcoin ATM. It only takes “cash”.

    • MiTurn says:

      The Coinstar machine at my local supermarket turns coins into crypto. Seriously.

  15. Michael Engel says:

    A year ago, on Nov 22 2021, NDX peaked. NDX monthly DM #12
    was Jan 2022. If NDX will end up green in the next 2TD, NDX will
    celebrate DM #13, it’s Bar Mitzva.
    NDX might be volatile thereafter…

  16. Don says:

    A billion here a trillion there, pretty soon you’re talking real tokens backed by tokens. It’s a no brainer! And the Bahamas AG was part of the token scam.

  17. phleep says:

    I wonder:

    1) how much the VC people were consciously in on the ponzi side of this (as many further-down-the-food-chain folks were), and

    2) whether, and when this unzipping (and the related bank run dynamics) will take down the alpha dogs, Coinbase and Binance. Coinbase is nervous, I can judge by its laughable “research-based” tout article recently appearing in Institutional Investor. CZ who heads Binance is nervous, scouting other players to put together a backstop fund. that is, MO, to stop the deluge before it reaches — Binance. There are a lot of rats-and-sinking-ships dynamics in play here. It is such an urgent fight for scraps, the predators don’t know who their friends are, anymore.

    3) will the next shoe to drop (or be obscured?): federal regulators and legislators who sucked up buckets of money from SBF/FTX. He tried to subvert the whole process, to create a greased-pig environment for his predations, and to involve all sorts of names in it.

    • phleep says:

      Also Tether could take a fall. And Grayscale Bitcoin Trust which last I heard, will not verify its reserves.

    • DawnsEarlyLight says:

      Whose greased-pig was Moonstone bank? SBF’s or the Fed’s?

  18. polistra says:

    I was trying to write a snarky comment about how old-fashioned Mafia gangsters would envy this super-cheap racket that consists of nothing but numbers….. OOPS! They already thought of the numbers racket, and it had most of the same features.

    • phleep says:

      But crypto added the special feature that it was going to not only make the player rich, but remake the world. Hang on though, Zuckerberg will still sell you some real estate in a very exclusive corner of the virtual New World above the clouds.

  19. Frank says:

    “It could only happen because of a massive bout of what I call consensual hallucination.” I think the dynamic is that there are too many dollars relative to available investments. Thus there is the last man standing syndrome. If one did full due diligence, they would be left behind by others who are too willing to sign a check. So the investment firms choices are to sit on cash or take a long shot. Their depositors screaming if you don’t invest my cash I’ll give it to someone who will…. Yes sometimes one has to shoot for the stars, but basics like having a rep on the board in exchange for a large investment and other norms are out the window.

    • 91B20 1stCav (AUS) says:

      …a gene we humans share with lemmings, perhaps?…

      may we all find a better day.

      • Wisoot says:

        Disney sick illusion on lemmings – sentient beings are born to live free joyous vibratory lives with a warm heart.

  20. Ricky says:


    There are a couple of stories circulating that, in my opinion, may cause the events you’ve been tracking to finally boil over into other markets.

    First, several outlets are reporting the partnership between Schwab, Fidelity, and (everybody’s favorite HF) Citadel Securities and the launching of their crypto exchange.
    I have a Fidelity account and when I launch their Crytpo page I see the platform isn’t finished. However, I can click to “get on the list” – which is very nostalgic as it takes me back to my Hollywood nightclub days – and to “boost my brainpower”. As you can see, it’s practically irresistible.

    What are your thoughts on this? I think they have impeccable timing and/or the greatest luck, EVER, to have almost all of their competition wiped out as they are about to launch. Nothing to see here, right?

    Lastly, Peter Hann (who I think posts some credible DD from time to time) posted that FTX started making deposits into a tiny Washington state bank: roughly $11.5M. Before that, the bank managed roughly $2M in Deposit accounts payable.
    Soon after, another $60M flowed in from 4 new clients. This led to the acquisition of the 1 branch bank which was re-named Moonstone.
    He states the acquisition was apparently facilitated by Jean Chalopin, the Chairman of Deltec Bank. Deltec bank is also Tether’s bank.
    (This is a summary of his post.)

    I haven’t had the time to verify all of this, but if what he says is true, and this crypto shockwave hits Tether, then that could be the deathblow, couldn’t it?

    Possibly plowing the field clean so Fidelity, Schwab, and Citadel can take over crypto and _______ (fill in the blank). We could go on and on and on…again, if this true.

    Interested in your thoughts. Thanks.

    *I would have tried to verify the Hann post before posting here, but this article seemed like the perfect opportunity to get this in before you and the readers moved on.

    • Wolf Richter says:


      All brokers are trying to maximize their income. Getting their share of revenues from crypto trading and crypto services would just be so cool. They would try to make money of trading in first-borns if it were legal. They never cared 1 iota about their investors.

      Schwab’s family of “money-market like” bond mutual funds collapsed during the financial crisis because they were loaded up with MBS, costing their investors billions of dollars and leading to countless class-action lawsuits which Schwab settled for lots of money, and a gazillion of individual lawsuits, which Schwab settled for lots of money, including with a friend of mine, so I know some of the details.

      These brokers are driven by only one thing: profits, and if it ruins their clients, well, we told you in the fine print that you could lose all your money.

      • Swamp Creature says:

        Schwab’s bond funds are where I put my kids college funds. Luckily, I spent it all on tuition before the GFC. They are nothing but a criminal organization worse than the mafia.

  21. Rico says:

    This was an ingenious scam to fleece the super rich who didn’t know what to do with their money.
    Play money. Nickels and dimes to them but the poor suckers who followed them may be hurt.
    Biggest scam of all time.

  22. Rodolfo says:

    I remember back in 2012 – 2013 there was a poster named Fonestar on zerohedge who constantly was trying to convince people to invest in bitcoin. Touting the features of bitcoin and why it was better than gold.

    This was when bitcoin was I guess around 50-500$.

    I was trying to secure some gold at the time and did kind of think to myself that maybe this bitcoin was a decent bet as it is limited in issuance etc.

    Well all the zerohedgers were just like the majority of you folks here. Negative and sure that bitcoin is a scam. Talked me out of pursuing bitcoin.

    Well here we are ten years later and bitcoin would have been much better protection than gold. Now Im too poor to get any.

    Wonder what we will see in another ten years?

    I hope Fonestar is doing Ok. I should have listened to you buddy.

    Best of luck to all of you.

    • Augustus Frost says:

      It was the result of the mania, that’s it. It’s not because BTC is such a fantastic innovation.

      • cb says:

        Give our FED whatever portion of the credit they deserve, scum sucking bastards that they are.

    • ru82 says:

      I remember back in 2021 and a guy name Michael Saylor saying to buy Bitcoin at $55k. Also a popular financial person named Kathy Woods. They both said it is going to $1 million. Kathy said $100k by the end of 2022.

      In 2021…so many people on Zerohedge were saying to buy BTC too. I did buy some but just $100 woth which is now worth about $30…no wait…actually zero because I bought it on the now bankrupt Voyager exchange because another rich person named Mark Cuban was touting the Voyager exchange. Dang. I sure wish I did not listen to them. I bet there are millions of other people in the same boat. Some have lost their life savings. I bet they wished they bought gold. A 100% loss would never happen with gold as there is no counterparty risk.

      Anyway. If you bought back in 2012, you probably have been a millionaire by 2021, but you would have just saw your life savings go down the drain the past 6 months. What would be more painful. Missing out on the runup and then losing it all or just avoiding Bitcoin completely and still have your life savings or retirement fund.

      • DR DOOM says:

        I want to see a Michael Saylor and Peter Schiff cage match over corporate ownership of Btc with Joe Rogan officiating. The Hoddlers might get to Schiff first. He could wake up on the beach at his home in Pureto Rico staked down like in Gulliver’s Travels.

      • cb says:

        @ ru82 –

        I get your point, but your timing is off. Bitcoins price in 2012 was under $15.

      • Nick Kelly says:

        Oh! someone mentioned Zoo H so I want to sneak in a quicky: there are a whole bunch of ‘moon landing was faked’ guys commenting on that site. I knew that swan existed but didn’t expect a flock.

    • Wolf Richter says:


      This is precisely why scams are so popular: they make people that get in early a LOT OF MONEY if they can get out in time. Even if everyone knows it’s a scam, it still doesn’t matter, and people still pile into it hoping that they get in early enough and get out in time. People love scams — the principle of “consensual hallucination.” And then when they blow up, OK, well, wailing and gnashing of teeth.

      But the people that got in early and got out in time, dumping their scam into the laps of others, well, they’re rich now. That’s the American dream, dude.

      And you’re regretting not having participated in the scam because if you had gotten in early and had gotten out in time, you’d be rich now. Even as others are now losing all their money.

      • cb says:

        sort of sad , the greed that infects us, to be the “American dream,” or any dream for that matter.

  23. Michael Engel says:

    The Dow don’t care about AAPL and creeptos. Professional investors
    short interest are the lowest since 2000.

  24. Hillel says:

    It’s like a house of cards

  25. KFritz says:

    Does Wolf Street expect the Crypto Meltdown to hammer the big players in the business (as seen in the below link)?

    • Wolf Richter says:

      It already hammered Bitcoin down by 75% in a year. That’s a pretty good hammering so far, I’d say. Others got hammered down a lot more. You just need to be a little patient for this to play out.

      • KFritz says:

        That’s good news. No one’s benefited more from crypto than purveyors and operators of malware. The entire ransomware ‘industry’ works because of crypto. If it collapses completely, their business model goes too.The fact that they’re mostly based in Russia is gravy on the potatoes.

  26. DR DOOM says:

    God bless her delusional heart. I saw a click bait you tube clip with Cathie Wood kinda giving an Elizabeth Holmes knock off whacko-stare with the caption that Btc will be a cool $1Million a coin in a few years. Chances are it is more likely that she will be selling Medicare-Advantage plans over the phone than cashing in that 1 Million a Btc.

    • bulfinch says:

      Whatever happened to Max Keiser? He wore out his adenoids pumping BTC for several years.

  27. Martok says:


    Perfect statement – “consensual hallucination” and I was looking for a term that fits this crypto-trash cult.

    I have been laughing at all this idiocy since it first started, and one poster said he printed out his Bitcoins on a piece of paper from a firm in the Cayman Islands that is very secure, – this logic is hysterical to me!

    There are so many holes in this logic, I won’t waste my time explaining, just like “chatty” Cathie Woods saying she “still sees bitcoin hitting $1 million by 2030”, that is irresponsible, insane, and stupid!

    The insanity to think this blockchain/blockhead tech that is based on popularity and thin air is going to revolutionize the banking system, is mass “consensual hallucination” like I have never seen before.

    It will all crash and burn like it should.

    P.T. Barnum has been upstaged – LOL

    • Cytotoxic says:

      Yeah so it’s still been the best investment since the GFC bar none. Even if you were dumb enough to HODL right through the crest, if you bought 10 years ago you are still wildly up.

      • Wolf Richter says:


        Precisely. Scams are good for those who get in early and get out in time. That’s why people such as you LOVE scams — until they blow up. Smart people know it’s a scam, and they love it because they can make money with it if they get in early enough and get out in time. It’s funny how this is being repeated over and over again.

        Smart people such as you who are into the scam know that part of making the scam work is getting other people to GET INTO the scam, and so these smart people such as you become proselytizers for the scam, including on this site (I do have limits on proselytizing here).

        • Jon says:

          I made some money in cyyptos.
          I knew it that it is a scam but I cashed out before things blew.

      • Steria75 says:

        I know, right?
        I totally agree 100% with the ¨Cytoxic Attitude¨!
        Newsflash to the ¨Humans¨: We live on the planet Earth, not Paradise or Heaven.
        That means we do not care about Morals or Ethics.
        I just decided to lie about everything to everyone, because the only thing that matters to me is to get even more rich than I am.
        I need more money and more resources, so I can buy more s**t and travel the world, and build even a bigger house to make my wife and me happy in life, before we head on up to *Heaven*.
        And if there is no heaven, then we are right to crush everyone else and take what we can get on this Earth, since this is the only chance we get.
        If I become nothingness when I die, it matters not! I am here on this terrible human-infested planet, and I will do what is necessary to f**k my fellow man and live the good life, because I deserve it.
        Excuse my sarcasm, just having some fun with Cytotoxic.

    • Brian says:

      What happens to the dollar and currency as we know it when we hit the debt spiral?

      • Martok says:

        I suppose you never heard of how interventions by the Federal Reserve work.

        It would be better to buy gold or silver than crypto-trash if you believe a “debt spiral” is going to happen – LOL

  28. SpencerG says:

    Casablanca … Greatest Movie Ever Made

    • BuySome says:

      Well, naah…Chinatown. Forget it Jake. It’s the Metaverse. (And The Two Jakes was better than the bad rap it got.)

  29. polecat says:

    Comply w/ “$ome rules”..

    Thing is .. If it were moi, the rules would be ironclad… meaning I’d be clapped in irons .. to waste away for all eternity… whilst the likes of these lying crypto scamsters get off scot free with nary a noodle lash! Here’s hoping their corporate jets ‘malfunction’.. to pitch straight down into the deepblu sea!!

  30. Xavier Caveat says:

    Don’t Bogart that joint venture my friend, pass it on.

  31. Cytotoxic says:

    The glory of crypto is that it fails quickly and thoroughly. 95% plus of tech startups fail, and they do it quickly. That’s crucial to tech’s success. Other sectors see mediocre orgs plod on wasting resources when they should just die (the more government involvement, the more plodding). May there be more of these failures, each one takes us closer to crypto dominance.

  32. Michael Engel says:

    Build high tech industries and old industries using automation and
    robots in US. Higher mfg jobs support the service sector.

  33. Michael Engel says:

    Prof Oren Cass : higher mfg wages support the service sector.

  34. Jan de Jong says:

    I just added a little to our $100 bitcoin hoard. Buy low, sell high; or lower.

    • Xavier Caveat says:

      Oh, you probably should’ve have invested a Benjamin in bitchcoin instead, its value goes up the more you kvetch.

  35. Swamp Creature says:

    Get Crypto at your local supermarket in the coin changer machine.

    WHAT A DEAL!!!

    Pay a 12.5% commission for using the machine

    Watch Crypto decline 20% in the next week.

    Lose 14% due to inflation

    Wow! Lose 12.5% + 20% + 14%

    As Jim Cramer is used to saying

    BUY! BUY! BUY!


    • 91B20 1stCav (AUS) says:

      Swamp-akin to a slot machine right there in the supermarket? As with the compulsion to peel labels off a malted beverage bottle, some will find it irresistible, even when presented with the arithmetic…

      may we all find a better day.

  36. Emil says:

    Wolf, can i ask you about last CPI report and upcoming core PCE index.

    Seems like without Helth Insurance, last CPI is still down for other categories,like Hotels and Motels that is 5.6% from previous 6.4%,  so market reaction was correct interpreting this as “inflation has peaked”?

    From your article i understood that you are implying that Dec 1 Core PCE will hit record because it doesn’t account for health insurance adjustment.
    Or it can repeat and show a lower month-to month increase mirroring CPI report?


    • Wolf Richter says:

      Inflation peaks whenever it actually peaks, and for the past 2 years, prediction after prediction that inflation “peaked” was proven wrong by inflation. Go look at the years 1970-1984. That’s how inflation works. During that period people assumed that inflation had “peaked” many times, including the Fed, which then cut interest rates, only to see inflation surge again to even higher rates. Inflation has a nasty life of its own. We will only know years later when inflation actually peaked.

      I didn’t say that core PCE will be a record, but that it won’t include the plunge in health insurance readings that the CPI included and that had pushed down core CPI and particularly the services CPI.

  37. Fistful of Dirhams says:

    I love it when the disciples say “blockchain is the revolutionary innovation for craptocurrencies”
    but when some token goes down the sh!t1er for billions and bankrupts thousands of enthusiasts they say
    “the crapto has nothing to do with the blockchain, the blockchain is always viable and lives for ever” LOL

  38. OTOH/IMHO says:

    Unless each and everyone of us raises holy hell with Congress, even worse is in store: despite the shambolic and criminal collapse of SBF/FTX, and now BlockFi and its affiliates, the banks that own the Fed are plowing ahead full speed to ram a Fed crypto down your throat which will entirely replace the existing money system and enable corruption on an unheard-of level. Among the things it will guarantee NIRP, a host of special charges that would make your phone bill blush, and a little VISA-like nip out of every transaction. It has the support of the President and many others in power. SAY NO TO THE FED CRYPTO!

  39. CreditGB says:

    As just an observer, it is interesting to watch how so much currency evaporates upon each bulk token or coin loan, or transfer between hundreds of affiliates and between exchanges and crypto “lenders”.

    Each move has it’s fees taken out so that the remaining “investment” is like the bones of a skillfully filleted fish.

    Swamp Creature, that crypto vending machine you described merely puts the entire bloody fish fillet process into a convenient one stop machine. Nice, neat, no mess. Better to dump money into the street, after a few weeks that would be worth as much.

  40. CreditGB says:

    FTX has 135 affiliated firms around the globe. Even if they kept their transfers internal among themselves it poses a fantastic opportunity to skim fees off of every transaction. If each “firm” took a 5% fee for transfer of crypto, by the 20th transaction, a $5m first transaction would be reduced to a little under $1.8 million. Fees taken would be a little over $3.2 million. Under FTX’s tight accounting controls, I’d imagine 20 transfers could occur before lunchtime.

    Put the entire transfer process in an algo, and it can be done and fees absorbed within seconds.

    Now the thing will be to find out what those entities spent those fees on.

    Accounts payable records hopefully exist.

    • butters says:

      Can you be a cool crypto company if we keep all the accounting? Asking for a friend.

  41. Ed C says:

    BITCON — my preferred spelling for something that made absolutely no sense from the get-go.

  42. CreditGB says:

    I see BlockFi’s incestuous old uncle Sam B/F has a $275m claim in on the BlockFi filing under West Realm Shires.

  43. CreditGB says:

    Ed C, BITCON seems more descriptive of the product for sure. I wonder what can this new word category be named? Just a starter list of somehow related words.

    Honest Politician
    Crypto Exchange
    Congressional investigation
    No new taxes
    Reliable green energy
    Privacy policy

  44. drifterprof says:

    Once I get my TulipCoin platform up amd running, the crypto world will stabilize and start skyrocketing again.

  45. Remy says:

    Thoughts on smaller brokerage firms/banks that are mixing in to this. I keep getting pitched by SoFi and Robbinhood for whatever crypto flavor of the day is. I know they have SIPC and FDIC insurance, but would hat to have to use it.

  46. BuySome says:

    AMKRAK-“Welcome aboard and enjoy being taken for a ride!”. Train arrives, sixteen INCryptocoaches long. Train arrives, sixteen INCryptocoaches long. Well that long blank train, took your money and done gone. Metatown, next stop Metatown!

  47. OTOH/IMHO says:

    “This was the first ever crackdown by the SEC on a crypto lending platform. Nine months later, the platform filed for bankruptcy and still owes the SEC $30 million.” The SEC, initially headed by Joseph Kennedy, who knew all the tricks of the tricksters, competently screened applicants in the wake of the devastation following the Crash of ’29. Now we are seeing the horrific consequences of a lack of oversight. This company should never have been allowed to operate in the first place, nor FTX, nor Alameda.

  48. OptionUp says:

    Make the small guys who can’t afford to lose much whole

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